India IPO Valuation Sample - Indian Capital Market

Mundra Port and Special Economic Zone will trade at range of INR 100 (USD 2.5) per share ( face value 10 plus premium 90), as EBITDA multiple 17.3 and EBIT multiple of 23 and book value of per share is INR 21.If this is compared with industry high of EBITDA 36 for port industry, logistic 28.5 and construction 27.5. MundraPort and Special Economic Zone has EBITDA above 45% and EBIT margin 40%.. Port and container which are projected to grow by 20% CAGR up to 2012 and logistic which is growing at CAGR 25% and projected to grow at the same speed until 2015. Capacity utilization at all major port in India at 100% and no new project will come till 2015 in west coast MundraPort with its modern infrastructure and system; will continue to grow at 35% CAGR well above the industry average. The third and most important sector is Special Economic Zone; this is real estate development of free zone with tax benefit. Real estate companies are growing 50% annually. This project is near completion with container terminal and port operations in place and development of free zone to be completed in 2011. Development of free zone and subsidiaries in Logistic and Container Handling within free zone drive growth well above industry average of 25%CAGR. Indian share index is up 80% in last one year from 9000 to 17000, Indian rupee up 12% in one year (from 46 per USD to 39 per USD).

Mundra Port, India s largest privately developed port is equipped with the latest infrastructure measuring up to international standards by Dubai Port World (DP World). The high-tech mechanized facilities enable the port to make full use of the 17.5 meters draft, the deepest along the west coast. The Port has 8 multi-purpose and 2 container berths, an all-weather multi-purpose terminal, IT based Integrated Port Management System, as well as other services like a full service customs establishment, business infrastructure and safety systems.

The Port is strategically placed with respect to the northern and western hinterland, to which it is well-connected by both railways and roadways. This area generates nearly 70% of India s containerized international trade. The Port has privately developed a 64 km railhead which is connected to the nearest railhead at Adipur. Mundra port is owned and developed by Adani Group. This is strategic investment with very good option to go for higher stake in near future in Logistic and Container Subsidiaries of the project

Commodity (million tonnes) (million tonnes) CAGR (%)

POL 182.45 290.00 4.74%

Container 51.00 251.40 17%

(TEUs) (3.90) (20.95) -18%

Iron Ore 71.35 131.50 6.43%

Coal 57.84 135.90 9%

Other Cargo 95.57 152.75 5%

TOTAL: 458.21 961.55 7.69%

Indian Stock Market

According to the Morgan Stanley Capital International (MSCI) Equity Indices, which compares the returns from various markets, India has given the second highest annual return at 38.36% among the BRIC (Brazil, Russia, India and China) countries in the last five years. Appreciation in rupee has further increased the return in dollar term in the last six months. The return from Indian stock market has gone up to over 57% in the last one year, resulting into foreign investors are rushing to invest. India has become a must destination in almost all foreign investors' portfolio. This has led creation of huge liquidity in the market and has provided further momentum to the upward movements of the stock prices.

But, still Indian sensex stocks are quoting at an average of around 21.50 times of their underlying profit. Against this, the Chinese companies' share prices are quoting at over 41 times of their underlying earnings. The high multiples at which the share prices of Indian companies are quoting is mainly is mainly because of their earnings. In the nominal terms, Indian sensex companies profit is growing at around 20%.

A sector wise analysis of IPOs

A sector wise analysis of IPO's reveals that returns are highest in the construction and real estate space at whopping 70%. The listing gains for the 16 constructions and real estate IPO’s on average stood at robust 71.5%, while overall gains for the 134 companies that launched initial public offers were 22.6%. The street it seems is offering premium to the growth prospects of the realty companies based on the amount of land they are holding.

IPO Pricing, valuation and gain

Mundra Port and Special Economic Zone is the first issue of special economic zones under development in India. The money will be investing into the SEZ, and Port. But most important thing for us is Inland Container Private Limited and Adani Logistic Limited. Both of these subsidiaries are in line with our objective. Port Fund can increase our strategic stake into these two subsidiaries. Both of these subsidiaries will go public in next three years time. This is very good project for Port Fund with 3 to 4 years time.

Ports Capacity

Till 2000-01, most ports were operating over or near the saturation levels of their handling capacities, resulting in high pre-berthing detention and turnaround time of vessels. The situation improved in 2000-01 as the port capacity of 291.45 million tonnes exceeded the cargo volumes of 281.11 million tonnes. The capacity in major ports as on March 31, 2005, was 397.50 million tonnes, and the traffic handled was 383.75 million tonnes.

The overall compound annual growth rate (CAGR) of traffic at major ports between 1951 and 2004 was 5.51 percent, whereas during the post-liberalization period, i.e., during 1991-92 to 2003-04, the CAGR has been 6.74 percent. However, in the last five years, the traffic growth at major ports has exhibited a CAGR of 10.63 percent

Traffic Projections for 2014

Keeping the objective of the Maritime Policy in view, the National Maritime Development Programme (NMDP) has prepared macro-level traffic projections for the overall port sector, which includes major and non-major/private ports. These projections are based on the feedback received from major ports and their users, a number of policy papers/plan documents, trade requirements, the international scenario governing the country's exports and imports and new and expansion projects to be undertaken by the public and private sector. The broad commodity wise traffic projections, as per NMDP, are presented below:

Traffic in All Projected

Traffic in All Ports during 2003-04 Projected Traffic 2013-14

Capacity Requirement

To meet the projected traffic of 705.84 million tonnes by 2013-14 likely to be handled at major ports, a capacity of around 917.59 million tonnes has been estimated. The detailed break-up of the commodity-wise capacity requirement is as under:

Commodity

Existing Traffic at Major Ports during 2004 - 05 ( million tonnes )

Existing Capacity at Major Ports 2004-05 ( million tonnes )

Projected Traffic for Major Ports 2013-14 ( million tonnes )

Overall Capacity requirement by 2013-14 ( million tonnes )

Additional Capacity to be created by 2013-14 ( million tonnes )

Recent Initiatives

The Indian Government has undertaken several policy initiatives for improving the Indian port sector. The investment policy developed by the government allows public-private participation in the ports sector and has been well received. Since the introduction of the policy, 13 projects with private sector participation have become operational and 4 projects are under implementation to promote modernization and development in the ports sector. These 17 projects involve an investment of INR 61.3 billion (USD 1.5 Billion), while an additional 20 projects involving more than INR 44.42 billion (USD 1.09 Billion) of private investment are under consideration.

Mundra International Container Terminal (MICT) is managed by DPW. This terminal having 632m of quay length, with alongside depth of over 17.5m has been commissioned and is operational since July 2003. Quay length is proposed to be extended to about 1200m in the near future. The Container terminal comprises of 2 berths capable of handling 1.2 million TEUs per annum. It is strategically located near India s largest cargo generating regions and is able to handle the deepest container vessels of the world.

The Terminal is capable of berthing 5th generation 8000 TEU vessels. The facility matches leading international port standards in this region (viz. Dubai, Colombo, Singapore, etc.). The terminal operates 24 hrs-365 days a year and has no tidal restrictions.

The Adani Group is one of India’s most dynamic business houses in India with an annual turnover of INR 16,000 crore (USD 4 Billion).

Founded in 1988 by Chairman & Managing Director Mr. Gautam Adani, the Adani Group has grown from being a trading house to a well-diversified group with interests from infrastructural development to FMCGs.

The Adani Group s business activities operate primarily in two business sectors, namely:

An exclusive SEZ with in-zone Port and Container Terminal: Mundra SEZ has an in-zone port with one of the biggest draft in the country that can berth Capesize vessel. The SEZ has its own container terminal and Container Freight stations. As a result, units operating in the SEZ can directly ship their Cargo from their factory floors to overseas market without any need for transshipment. These in zone facilities reduce freight cost and transit time, thereby improving profitability.

Single window clearance

The port operates with a single window clearance system of management which ensures swift clearance and rapid movement of cargo and quick turnaround time.

Development plans

The Port management has ambitious plans of increasing capacity to 100 MT by 2015.Long term development plans include additional berths and backup facilities that will eventually take the Port to its projected target in the next 10 years. Waterfront for an additional 14 berths basin, 2 dedicated coal jetties which can handle Capesize vessels, Berths for handling speciality chemicals, also more berths planned for handling LNG/CNG/PNG are in pipeline.

According to the Morgan Stanley Capital International (MSCI) Equity Indices, which compares the returns from various markets, India has given the second highest annual return at 38.36% among the BRIC (Brazil, Russia, India and China) countries in the last five years. Appreciation in rupee has further increased the return in dollar term in the last six months. The return from Indian stock market has gone up to over 57% in the last one year, resulting into foreign investors are rushing to invest. India has become a must destination in almost all foreign investors' portfolio. This has led creation of huge liquidity in the market and has provided further momentum to the upward movements of the stock prices.

But, still Indian sensex stocks are quoting at an average of around 21.50 times of their underlying profit. Against this, the Chinese companies' share prices are quoting at over 41 times of their underlying earnings. The high multiples at which the share prices of Indian companies are quoting is mainly is mainly because of their earnings. In the nominal terms, Indian sensex companies profit is growing at around 20%.

Chinese economy is growing at 10.7%. But, the shares prices of Chinese companies are quoting at 41 times of the underlying profits, which are almost double that of India.

One reason is the Bombay Stock Exchange's benchmark Sensex Index, which delivered a nearly 50% return last year and is up about 2.2% so far in 2007. In all, some 150 companies will list this year and raise an estimated $10 billion, according to Delhi-based Prime Database.

Global IPO Market

Stock markets continue to remain a key route for corporate to raise funds for expansion, with the worldwide IPO’s space posting a record net proceeds of $ 246 billion in 2006.India's IPO market emerged as the eighth largest with $ 7.23 billion (Rs 30,000 crore) in net proceeds through 78 public issues. Across the world, the companies raised $ 246 billion, up from $167 billion in 2005, through a total of 1,729 IPO’s, led by Chinese companies at the top with net proceeds of $56.6 billion. However, the biggest number of IPO’s came from the US with 187 offerings, followed by Japan with 185 and China with 175 IPO’s. In 2007, a rich variety of high quality companies continue to surge through world IPO’s pipeline with last years momentum, albeit with smaller deal sizes. Reliance Petroleum, which raised $1.8 billion, featured in the global Top 20 IPO’s, which together raised $84 billion, representing 35 per cent of the total capital raised by all IPO’s.

INDIA: Indian Exchanges Host Billion-Dollar IPOs.

The strength of India’s economy, stock market, corporate profits, energy sector and private equity has fuelled IPO’s in 2006 and 2007. India’s market raised US$7.23 billion through 78 IPO’s in 2006. The private equity rush into India is creating the potential for many IPO exists. Top global private equity funds such as Carlyle, Blackstone, Texas Pacific and Warburg Pincus, as well as local funds, have been key drivers of the strength of Indian IPO markets.

With more than Rs 26118 crore raised through public offerings (including IPO’s and FPO’s) in the quarter ended July 2007, India is now the world’s eighth largest IPO market. The Bombay Stock exchange’s benchmark index has risen about 133% in the past two years, from 6679 on 1 January 2005 to 15551 on 31 July2007, making it easy for companies to raise money through the public market.

India ranks seventh overall in the world, in the terms of IPOs in the first half of 2007, with $4.6 billion collected from 46 deals. The Indian second half performance is expected to be even higher, based on the existing pipe-line of 18 IPOs that are already slated to tap the markets and raise $4.1 billion. Despite the focus on real estate and finance, India’s industrial sector garnered the most IPO proceeds, with about $2.5 billion from nine issues.

A sector wise analysis of IPOs

A sector wise analysis of IPO's reveals that returns are highest in the construction and real estate space at whopping 70%. The listing gains for the 16 constructions and real estate IPO’s on average stood at robust 71.5%, while overall gains for the 134 companies that launched initial public offers were 22.6%. The street it seems is offering premium to the growth prospects of the realty companies based on the amount of land they are holding.

2. Infrastructure development is now an ‘India’ priority and the government is acting as a facilitator / policy maker to facilitate investment in infrastructure

3. Development and funding of infrastructure is moving away from government control to public-private partnership

4. In terms of market capitalization, we are still at a nascent stage. We expect the market capitalization of infrastructure companies to increase by over USD 100 bn in the next three to five years.

5. Opportunities exist across the infrastructure sector, time horizons (short-term to very long-term invest- ments in multi-decade BoT projects), risk profiles (low, medium and high risk investments), and ticket sizes (from small to multi-billion dollar projects).

Investible space of INR 1.2 trillion (USD 26 bn) …and increasing

Expected infrastructure investment of INR 14 trillion over FY07-12E is likely to open the floodgates for primary and secondary market investors. The rising investment potential of the infrastructure sector over the past three years is primarily driven by:

Cumulatively, the infrastructure companies under Edelweiss Research coverage yield an investible space of ~INR 1.2 trillion (USD 26 bn). This float is 53.7% of the total market capitalization of the rated companies. This figure has gone up 12x over the last three years from INR 100 bn (USD 2.2 bn) in January 2003.

Source: Bloomberg, Edelweiss research

Base; January 1, 2003 = 100

Index value as on April 26, 2006 = 1,214

The increased investment potential of the sector in FY06 is led by large-sized initial public offerings (IPO’s) and multiple mid-sized follow-on public offerings (FPOs). The investment potential of the sector has increased from INR 337 bn on April 1, 2005 to around INR 1.2 trillion as on April 26, 2006.

FY06. Interestingly, new issuances and follow-on issuances are a recent phenomenon. In FY04 and FY05, net additional paper constituted 6% and 0.2% respectively, of total float-weighted market cap for rated companies as compared with 21.2% in FY06. Excluding new large issues like Suzlon and that of the construction companies, free float market capitalization of the infrastructure companies has improved by 171% in FY06 over FY05 closing levels. INR 200 bn of new issuances and INR 28 bn of follow-on issuances in FY06 were the highest as compared with net total issuances of INR 14 bn in FY04 and FY05 combined (net of buy-backs and warrants issued to promoters).

Expanding order book is likely to necessitate capital raising by the currently listed infrastructure players. We expect equally strong follow-on issuances as in newer float. We reckon that majority of the large- sized infrastructure players are likely to tap the markets to translate their order books to execution.

Further, the ‘developers/owners’ space, largely comprising the Indian corporate sector, is likely to raise funds to take ownership of under-developed and future projects, going forward.

The Edelweiss Infrastructure Float Market Cap Index has outperformed the BSE Float Market Cap Index by ~ 3x in the period September 1, 2003 (the time when BSE started publishing the index) to April 26, 2006 and has outperformed the BSE Sensex by ~ 4x in the period January 1, 2003 to April 26, 2006 Such out performance is explained by large float through IPO’s and FPOs and extremely strong stock performance. The steady stream of IPO’s and FPOs are indicative of the increasing demand in primary and secondary markets as well as increasing investment potential of the companies. This is likely to keep the sector’s focus intact, implying positive influence on liquidity in the secondary market. As the infrastructure build-up story is stronger compared with the broader market story, we expect relatively stronger inflows into the infrastructure sector.

Prominence of a few and dependence on some

Among the constituents of the Edelweiss Infrastructure Float Market Cap Index Edelweiss Infrastructure Float Market Cap Index Edelweiss Infrastructure Float Market Cap Index Edelweiss Infrastructure Float Market Cap Index Edelweiss Infrastructure Float Market Cap Index, the relatively prominent and better performing sectors are power and equipment sectors. The power sector has outperformed the equipment and construction index. This relates to the additional large float of Suzlon to the overall power infrastructure space.

﻿Covetous historical performance

These sectors have shown an exemplary performance since January 2003. Market cap in the construction sector has increased by more than 30x, power sector by 24x, and mining equipment sector by 15x compared with the BSE Index and BSE Float Weighted Sensex which have increased by 2.8x and 3.2x respectively. This performance includes only the rated companies that were listed on January 1, 2003. We expect this out-performance to continue going forward.

With India desperately struggling to grow up its infrastructure, from roads to power to ports, a host of real estate and infrastructure companies will enter the market. Last year's IPO activity was extremely robust despite worries by some that the Indian stock rally had run its course. Yet when stock prices resumed their march upward later in the year, investors began to view the “pessimists with skepticism" and again started snapping up shares of newly listed companies. Taking into consideration the performance of the IPOs in the 1st half of 2007, almost 59 companies have been listed and 29 companies out of these are currently quoting below the listing price. These companies are mainly. These companies who have not been able to fetch good returns to the investors are mainly from the textile, Pharma, Real estate, Ceramics and Miscellaneous sector.

(Net profit after tax as restated/Net Worth at the end of the year or period)

Minimum Return on total Net Worth after the Issue required to maintain the pre-Issue adjusted EPS of Rs. 5.36 is [•] %.

4. Net Asset Value (NAV) per Equity Share (of face value Rs. 10 each)

(a) As of March 31, 2007: Rs 20.5

(b) After the Issue: Rs. [●]

NAV has been calculated as per the following formula:

Paid up equity share capital plus free reserves (excluding reserves created out of revaluation) less deferred expenditure not written off (including miscellaneous not written off) and debit balance of Profit and Loss Account, divided by weighted average number of equity shares outstanding during the year

OBJECTS OF THE ISSUE

The objects of the Issue are:

• Construction and development of basic infrastructure and the allied facilities in the proposed SEZ at Mundra;

• Construction and development of a terminal for coal and other cargo at MundraPort;

The main objects and objects incidental or ancillary to the main objects set out in our Memorandum of Association enable us to undertake our existing activities and the activities for which funds are being raised by us through this Issue. The fund requirements below are based on our current business plan. In view of the highly competitive and dynamic nature of the industry in which we operate, we may have to revise our business plan from time to time and consequently our fund requirement may also change. This may include rescheduling of our capital expenditure programmes and increase or decrease the capital expenditure for a particular purpose vis-à-vis current plans at the discretion of our management. In case of any variations in the actual utilisation of funds earmarked for the above activities, increased fund deployment for a particular activity will be met from internal accruals of the Company. In case of surplus funds, the same shall be utilised towards General

Cost of the Projects

The following table summarizes the total cost to be incurred on the projects:

Particulars Estimated Cost (in Rs. million)

Construction and development of basic infrastructure and the allied facilities in the proposed

SEZ at Mundra (“SEZ Project”) 7,000.0

Construction and development of a terminal for coal and other cargo in the vicinity of power 20,000.0 projects at MundraPort (“Coal Terminal Project”)

Mundra Port, India s largest privately developed port is equipped with the latest infrastructure measuring up to international standards by Dubai Port World (DP World). The high-tech mechanized facilities enable the port to make full use of the 17.5 meters draft, the deepest along the west coast. The Port has 8 multi-purpose and 2 container berths, an all-weather multi-purpose terminal, IT based Integrated Port Management System, as well as other services like a full service customs establishment, business infrastructure and safety systems.

The Port is strategically placed with respect to the northern and western hinterland, to which it is well-connected by both railways and roadways. This area generates nearly 70% of India s containerized international trade. The Port has privately developed a 64 km railhead which is connected to the nearest railhead at Adipur. Mundra port is owned and developed by Adani Group. This is strategic investment with very good option to go for higher stake in near future in Logistic and Container Subsidiaries of the project

This is very good buying at INR 100 (USD 2.5) per share ( face value 10 plus premium 90). Fundamentally this is very good company with EBITDA margin is above 45% and EBIT margin is around 40%. This company is operating in the sector which has highest growth in the past five years and projected to grow strong in the future i.e. Port and container which are projected to grow by 20% CAGR up to 2012 and logistic which is growing at CAGR 25% and projected to grow at the same speed until 2015. The third and most important sector is Special Economic Zone, this is real estate development of free zone with tax benefit. Real estate companies are growing 50% annually. This project is near completion with container terminal and port operations in place and development of free zone to be completed in 2011. Development of free zone and subsidiaries in Logistic and Container Handling will give grow and strategic investment for port fund. Following two factor’s will also contribute to the growth of the share prices. Rise of Indian stock market (market is up 80% in last one year from 9000 to 17000), Rising rupee up 12% in one year (from 46 per USD to 39 per USD).

EV/EBITDA

Port – ABG Heavy Industries Ltd 8.9

Port- ABG Shipyard Ltd 18.4

Balmer Lawrie 31.4

Bharati Shipyard 36.5

LogisticBetween 10.3 and 28.5

Construction Around 27.7

P/E Ratio Sector

Port - 22.6

Construction- 30.3

Construction High End- 178.4 ( Development of SEZ)

Logistic- 30

At INR 100 per share (USD 2.5) the Mundra port and Special economic zone is 17.85 P/E ratio which is reasonable.

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